Sent Items #178: Monday, February 17, 2025

Back from Manifest where I saw many of you, had 13 Happy Hours and 6 dinners over 2 nights. It was a chaotic high school reunion as one friend put it, and another dubbed it “supply chain summer camp”. Yes to both. So great seeing everyone, but glad to be back, particularly after 2 trips to Vegas in under a month. I think I’m good on Vegas for a while. Here’s to more events away from Vegas! I was in many selfies but here’s the only one I took (if you know this guy, you know)

Unrelatedly, anyone watch the USA-Canada Hockey game Saturday night? 3 fights in the first 9 seconds of play! After seeing these men go at it, I suspect Canada won’t soon become the 51st state 🤣

Here’s what hit my radar recently:

• SHOPIFY IS CRUSHING IT! Shopify released earnings last week - I consider it the pulse on the state of e-commerce. GMV (fancy word for sales) of $94.5bn, growth of 26% for the year. That makes $292bn in GMV in 2024 🤯 Revenue of $2.8bn, up 31% on the year. Gross profit of $1.35bn, up 27%. They also reached their lowest quarterly operating expenses as a percentage of revenue since they went public a decade ago! Shopify represents greater than 12% of U.S. e-commerce market share and expect further penetration.

• TARIFFS are still on our mind! The TLDR - no one knows how things will shake out with tariffs (not even Trump I muse 😬) What feels safe to say is that the loopholes of the last few years have closed e.g. China —> (Mexico —>) U.S. Over the last 2 months I’ve worked with some of the largest Shopify brands planning their 3PL out of Mexico and other “at-risk” markets and to the U.S. Suffice to say, China's De Minimis Boom Goes Bust (link)

• Amazon’s third-party sellers accounted for an all-time high of 62% of units sold in Q4 2024 (link). One-fourth of Amazon’s revenue now comes from seller fees, another record high. History suggests that both numbers will continue to rise as Amazon steadily and purposefully shifts from retailer to infrastructure provider.

• Small warehouses are getting harder to find (link). The vacancy rate for U.S. warehouses under 100,000 square feet was 3.9% in the fourth quarter, far below the 6.7% overall vacancy rate. That was also less than half the 10.1% vacancy rate for buildings of more than 100,000 square feet.

• Chinese Temu sellers use fake U.S. postage labels to boost their profits (link). Some Chinese Temu merchants are padding their profits by using counterfeit postage labels to trick the U.S. Postal Service into delivering packages for free. Posts on Chinese social media openly promote fake labels for as little as 60 cents, and the scam costs the USPS millions (likely, hundreds of millions) of dollars a year.

• How Walmart is building its last-mile delivery service GoLocal to compete with Amazon (link). GoLocal now caters to 10 different retail verticals, from beauty to home goods to sporting goods. It has made 30 million deliveries since its debut in 2021 — a 150% increase from the 12 million it cited in November 2023.

Let’s dig into each a story…

• SHOPIFY IS CRUSHING IT! Shopify released earnings last week - I consider it the pulse on the state of e-commerce. GMV (fancy word for sales) of $94.5bn, growth of 26% for the year. That makes $292bn in GMV in 2024 🤯 Revenue of $2.8bn, up 31% on the year. Gross profit of $1.35bn, up 27%. They also reached their lowest quarterly operating expenses as a percentage of revenue since they went public a decade ago! Shopify represents greater than 12% of U.S. e-commerce market share and expect further penetration. 875 million consumers bought from a Shopify merchant’s online store in 2024.

• While many think of Shopify as mainly an SMB online solution, its biggest growth is from its largest customers (who run far more payments through Shopify), in its offline/in-store business, and in B2B commerce.

• International Revenue Up +33%. 50% of Revenue Outside North America.

  Go global as early as you can! Shopify has just 45% of its revenue in the U.S. (plus 5% in Canada).

• China-based e-commerce platforms built multi-billion dollar businesses by exploiting a customs loophole. That loophole – Section 321 ‘de minimis’ thresholds – is now closed, and with it, the current era of ultra-cheap direct-from-China retail.

• According to U.S. Customs data, de minimis imports exploded from $9.2 billion in 2016 to $54.5 billion in 2023, with Chinese sellers accounting for nearly 60% of all shipments.

• The impact on domestic retailers has been substantial. U.S.-based Gap paid $700 million in import taxes in 2022, while direct-from-China competitors paid virtually nothing. This advantage allowed Chinese platforms to consistently undercut U.S. retailers, leading to rapid growth. Temu had set an ambitious $60 billion global sales goal for 2024.

• This suspension fundamentally changes the economics. Chinese platforms will now face the same tariffs that have burdened U.S. retailers for years. Plus – despite a last-minute, 30-day delay – de minimis shipments from Canada and Mexico are also set to be suspended, eliminating any hopes of leveraging tariff mitigation strategies through nearby warehousing.

• Amazon’s third-party sellers accounted for an all-time high of 62% of units sold in Q4 2024 (link). One-fourth of Amazon’s revenue now comes from seller fees, another record high. History suggests that both numbers will continue to rise as Amazon steadily and purposefully shifts from retailer to infrastructure provider.

• According to Amazon’s latest earnings report, third-party seller services generated $156.1 billion in 2024, representing 25% of Amazon’s total revenue. This revenue stream, combined with the growing advertising business – which reached $56.2 billion in 2024 (up 19.8% yoy) – has become the core of Amazon’s e-commerce infrastructure flywheel as first-party retail continues to decrease in overall revenue share and importance.

• This strategic shift away from first-party relationships moves resources from high-risk, low-margin inventory ownership to the lower-risk, higher-margin activities of collecting seller fees and advertising revenue.

• On the current trajectory, third-party service fees and ad revenue combined will overtake Amazon’s first-party revenue as a percentage of overall revenue within three years

• Small warehouses are getting harder to find (link). The vacancy rate for U.S. warehouses under 100,000 square feet was 3.9% in the fourth quarter, far below the 6.7% overall vacancy rate. That was also less than half the 10.1% vacancy rate for buildings of more than 100,000 square feet.

• One part of the problem is that over the past five years developers have focused on constructing big buildings of more than 100,000 square feet to accommodate growing e-commerce operations. Smaller warehouses have been less desirable to build, in part because they are often in urban and suburban areas where space is tight and land is expensive. About 8% of the new warehouses built last year were less than 100,000 square feet.

• Chinese Temu sellers use fake U.S. postage labels to boost their profits (link). Some Chinese Temu merchants are padding their profits by using counterfeit postage labels to trick the U.S. Postal Service into delivering packages for free. Posts on Chinese social media openly promote fake labels for as little as 60 cents, and the scam costs the USPS millions (likely, hundreds of millions) of dollars a year.

• Chinese merchants using counterfeit postage labels tend to work with small warehouses in the U.S. that are willing to bear the legal risk of processing such packages. The merchants send digital files of the counterfeit labels — which have details of the shipper and recipient, a tracking number, and a barcode — to the warehouses. Workers there print out the labels, affix them to the packages, and drop them off at post offices.

• One Temu merchant has been purchasing 1,000 to 2,000 fake labels daily, and sending them as PDFs to a U.S.-based warehouse since November, he told Rest of World. The labels would typically cost more than $8 each, but the fake ones cost only 5 yuan (68 cents) each, he said, requesting anonymity as his activity is against platform policy.

• The use of fake shipping labels precedes the de minimis crackdown. In May 2023, authorities arrested a California logistics operator who pleaded guilty to defrauding the USPS out of more than $150 million by using counterfeit postage to ship millions of packages for Chinese businesses.

• How Walmart is building its last-mile delivery service GoLocal to compete with Amazon (link). GoLocal now caters to 10 different retail verticals, from beauty to home goods to sporting goods. It has made 30 million deliveries since its debut in 2021 — a 150% increase from the 12 million it cited in November 2023.

• Walmart launched GoLocal in August 2021 as a delivery-as-a-service business. At the time, Walmart said that deliveries would be handled by Walmart associates, gig workers and, occasionally, other delivery companies. Its first partner was Home Depot, which uses GoLocal for same-day and next-day delivery and delivery for big and bulky items. GoLocal’s list of partners now includes 1-800 Flowers, Books-A-Million, Hibbett, Sur La Table, UrbanStem and Sally Beauty.

• Walmart is looking to grow its B2B delivery service at the same time that it’s trying to catch up to Amazon. In 2022, Amazon overtook UPS and FedEx as the top delivery company in the U.S.. In 2023, Amazon Logistics processed 5.9 billion U.S. delivery orders, the equivalent of over 16 million deliveries per day.

• Walmart is going after a different market with GoLocal. Amazon mostly services its own merchants from its e-commerce platform. Walmart, however, is offering last-mile delivery to retailers that either don’t have the resources to build out last-mile networks or don’t want to rely on traditional carriers.

A couple PSAs:

1. My friends at Parabola and StartOps are preparing a really neat Tech Stack Report. The report is diving into exactly what tools folks are using; how other brands are thinking about AI adoption; what the biggest current challenge are re: tech in the ops space; and tons of predictions from experts. You have until Wednesday to fill out the survey.

2. Next week I’m doing a webinar with a few friends hosted by Parabola, titled Navigating geopolitical uncertainty as a supply chain leader. Excited to take swings and guesses on what may or may not happen in the coming months. You can sign up here (link).

- Matt

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